Creating the new Sky - Amazon...
Transcript of Creating the new Sky - Amazon...
Creating the new Sky
25th July 2014 Ryder Cup
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THIS PRESENTATION IS BEING PROVIDED TO YOU SOLELY FOR YOUR USE AT INVESTOR MEETINGS TO BE HELD IN CONNECTION WITH THE POTENTIAL TRANSACTIONS DESCRIBED IN
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This document includes statements that are, or may be deemed to be, "forward-looking statements", including within the meaning of Section 27A of the Securities Act and Section
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"anticipates", "expects", "intends", "will", "could" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include
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By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of factors could cause actual results
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view with respect to future events as at the date of this document and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the
conditions to the acquisition being satisfied, the Company’s ability to integrate acquired businesses and personnel, the successful retention and motivation of key management,
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future financial years would necessarily match or exceed the historical published earnings per share of the Company.
As the Company has only conducted a limited due diligence exercise of Sky Deutschland AG's non-public information, the information included in this document in relation to Sky
Deutschland AG has been compiled on the basis of publicly available information and has not been verified by the Company or by Sky Deutschland AG or Sky Deutschland AG
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and the Prudential Regulation Authority
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Creating the new Sky
• UK business is performing well
– Excellent growth in products and customers
– Strong financial performance
– Clear opportunity for continued growth
• The new Sky opens up an even bigger opportunity
– Expanded headroom for growth
– Benefits of scale
– Leverage capabilities across multiple markets
• Enhanced value creation German Grand Prix
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BSkyB Full Year Preliminary Results
Approach to growth and creating the new Sky
Transaction details
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2013 2014
2.6m
3.1m
1. Organic growth, excluding product growth attained through the acquisition of O2 broadband and fixed line telephony business in June 2013.
2. Annual customer additions in 000’s.
342
257
2013 2014 2013 2014
264
134
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£576
£541
£504
2014 2012 2010 2014 2012 2010
/
/ /
/ /
10.5% 9.9%
10.7%
/ / / / /
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Game of Thrones
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• Great year for Sky Sports
– Share of viewing highest for 7 years
– 49 of top 50 Premier League matches
• Sky Movies service stronger than ever
– Total consumption up
– Renewal of output agreements
• Biggest year of entertainment
– Channels rated as must have content
– Record audiences
Strong performance on screen
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Jun 12 Jun 14 Jun 13 Jun 12 Jun 14
3.5
5.5 4.6
Jun 13 Jun 12 Jun 14
1.0
5.7
2.7
Jun 13
/ /
/
/
/
1.3
6.2
18.7
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Strong returns from connected services
• Higher propensity to take premium services
• TV Box Sets driving upgrades
• Sky Store revenue up 100% year on year
• Over 10% increase in satisfaction among
connected box and Sky Go customers
• Positive impact on brand perceptions
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1Other operating costs include Marketing, Subscriber Management, Fixed Transmission and Administration costs, excluding adjusting items, for the 12 months ended 30 June
2Excludes £70 million of one–off costs relating to connected home investment
• Fewer, bigger, better
– Reviewed routes-to-market
• Right first time
– Most reliable box in 83% of homes
– In-sourcing broadband service visits
• Self service
– Installing fibre without engineer visit
– Continued to reduce call volumes
2010 2014
1
43.7%
36.8%2
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Revenue adjusted for exceptional items and the discontinued retailing of the ESPN channel
Adjusted for exceptional items
2014 Change
y-o-y
Revenue1
£7,611m +7%
EBITDA2
£1,667m -1%
EPS2
60.0p -
Dividend 32.0p +7%
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2004
6.0
32.0
2014
• Strong cash generation
• 7% increase in dividend
in FY14
• Consistent track record
of growth
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• Excellent year of performance
• Delivered against a clear plan
• Strong finish to the year
• Clear pathway for growth
Summary
Frozen
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BSkyB Full Year Preliminary Results
Approach to growth and creating the new Sky
Transaction details
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Sky today
Got To Dance
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• A broader business than ever before
• New headroom for growth
• Track record of returns from investment
• Transformation in scale
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Revenue, EBITDA and EPS adjusted for exceptional items.
1,071
7.6
2009 2014 2009 2014 2009 2014
1,667
25.9
60.0
5.3
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Content
Customers Innovation
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• A world-class multinational pay-TV business
• Serving 20 million Sky customers in five countries
• Shared ethos of increased choice, better content
and superior TV experience
• Leveraging best-in-class capabilities
• Substantial opportunity
• Good for customers and shareholders
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True Detective
Clear and compelling rationale
• Expanded growth opportunity
• Platforms of choice
• Better for customers
• Enhanced value creation
– Greater long term revenue growth
– Earnings enhancing
– Progressive dividend
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• Drive pay-TV penetration
• Sell more products
• Accelerate innovation
• Develop adjacent business revenues
• Target new customer segments
Sources: Screendigest, Company data
1. as at December 2013
Sky today1
new Sky
TV
Ho
us
eh
old
s (
m)
Pay-TV penetration Pay-TV headroom
26% 53%
14m
32%
66m 4.7x
30m
97m 100
80
60
40
20
0
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• Number one position in three out of
four biggest TV markets in Europe
• Leading in multiplatform service delivery
• Europe’s biggest investor in content
• Partner for creative and tech industries
• c.50% increase in revenue to £11.2bn
• Deploying capability at significantly
increased scale
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Sky Italia: well placed to return to growth
• Attractive market
– Fourth largest market in Europe
– Low penetration of pay-TV & additional products
– Strong sports culture
– No triple play operators
• Strengths
– #1 position in market
– Stable customer base
– Brand leadership
– Leading premium content offering
– Original production capability
– Growth and efficiency plans in place
X Factor
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Bundesliga
Sky Deutschland: strong momentum
• Attractive market
– Largest market in Europe
– Low penetration of pay TV and additional products
– Partnerships with cable and telecoms operators
• Strengths
– #1 position in market
– Clear leader in premium sport with strong fan base
– High TV growth rates
– Track record of innovation
– Strong performance in churn and ARPU
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• Highly complementary assets
• Shared brand and culture
• Accelerated innovation
• Bringing together core strengths
Content
Customers Innovation
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Well positioned for future growth
Up
• Exposure to broader opportunity
• Strong foundation from track record of UK success
• Combination of high quality assets
• Core areas of strength shared across enlarged group
• Better placed for increasingly global marketplace
• Significant value creation for shareholders
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BSkyB Full Year Preliminary Results
Approach to growth and creating the new Sky
Transaction details
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• Total cash consideration of £4.9 billion2
– Sky Deutschland: cash of £2.9bn for 57.4% of equity held by 21CF3 (equivalent to €6.75 per share)
– Sky Italia: cash of c.£2.07bn plus transfer of minority stake in National Geographic International
to 21CF (c.£380m)4
• 21CF subscribe for c.£500 million via pro-rata placing
• Subject to BSkyB shareholder approval5
• Required offer to Sky Deutschland minority at €6.75; no minimum acceptance condition
1. See appendix for full sources and uses table
2. Rises to £7.0bn at 100% take-up by the minority shareholders in Sky Deutschland
3. On a fully diluted basis
4. Valuation of USD $650m
5. As 21CF are a related party, they will not vote on the deal
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£m1
30 Jun-142
31 Mar-142 30 Jun-14
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Revenue 7,617 1,282 2,270 11,169
Programming
(2,662) (757) (1,147) (4,566)
Operating costs4 (3,695) (582) (1,052) (5,329)
EBITDA 1,667 16 250 1,933
EBIT 1,260 (57) 71 1,274
OpFCF5 1,124 (72) 109 1,161
Net Debt 5,533
Net debt/EBITDA ratio 2.9x
1. Results of Germany and Italy converted at exchange rate of €1.25:£1
2. The combined figures do not comprise proforma financial information and are based on different accounting policies and financial information provided at and for periods ended at different dates. BSkyB and
Sky Italia accounts applying IFRS and BSkyB policies, SkyD accounts applying IFRS and SkyD policies. Sky Italia based on unaudited information received from management and is subject to final confirmation: All
figures 12 months ending
3. “Enlarged Group” is the arithmetic aggregation of three entities. The information in relation to SkyD is based on public information extracted without material adjustment from SkyD’s consolidated financial
statements for the year ended 31 December 2013. Net debt is on the basis of 57.4% take-up of SkyD
4. To better reflect the on-going run rate, Sky Italia excludes the one off impact of 2014 Winter Olympics which results in an increase in EBITDA of £30m
5. EBITDA less cash capex.
Enlarged Group3
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• Lower value per subscriber than peer group
• SkyD: nil premium to six month VWAP
• Capitalised value of synergies c.£2 billion2
• €300 million NPV of German tax losses3
Estimated value per subscriber (£)
BSkyB DirecTV Canal + SkyD/Sky Italia
blended avg.
TEF / D+
£649
£877 £921 £943
£1,436
1. See appendix for calculation and source materials
2. £200 million pa valued at BSkyB’s current EV/EBITDA multiple of 9.2x as at 23 July 2014
3. Estimated
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Assuming transaction closes before December 2014.
Production and commissioning
New revenue opportunities
Back office, IT and procurement
Product and set top box development
• Specific plans already in place
• Draws on track record of operating efficiency
• Prudent approach; less than 4% of enlarged operating cost base
• Almost all within UK and Italy
• Further synergies expected over longer timeframe
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Production and commissioning
• Common channel brands and creative
• Cross-border use of original programming
• Shared production of live events
New revenue opportunities
• AdSmart
• Sky Store
• Sky Go Extra
Back office, IT and procurement
• Broadcast infrastructure
• Transmission
• IT systems
Product and set top box
development
• Aligning roadmap
• Sharing R&D capability
• Consolidation of TV platform operations
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• Enhanced long term sustainable revenue growth
• Earnings enhancing
– Earnings neutral in second full year of ownership (FY 2017), strongly accretive thereafter
– Before benefit of German tax losses1
• Returns to exceed cost of capital within five years
• Good financial flexibility
– Investment grade credit rating of at least Baa3 and BBB-
– Low sensitivity to the level of Sky Deutschland acceptances
1. Subject to formal confirmation by German tax authorities
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• Utilise existing cash of
£500 million
• Expected cost of new debt
less than 4.5% p.a.
• £5.1bn of transaction debt
fully underwritten1
• £1bn Revolving Credit Facility
• Transfer of minority stake in
National Geographic to 21 CF
– Exit multiple of c.21x2
• Proceeds from disposal
of ITV stake
• Almost £1bn of value unlocked
• Maintained investment
grade credit rating
• Fully underwritten 9.9%
equity placing3
Balance sheet capacity Effective use of
minority investments Retain financial flexibility
1. Debt requirement assumes 100% acceptances in Sky Deutschland offer. Fewer acceptances will decrease the financing requirement.
2. Consideration of c£380m divided annual JV income of c£18m
3. Commitment from 21CF to participate pro-rata in the placing
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Clear financial policies
• Commitment to strong investment-grade credit rating
– Aiming to reduce leverage by between 0.5x and 0.7x by June 2016
• Target to reduce to 2.0x EBITDA in the medium term
• Uses of capital
– Progressive dividend maintained
– Cessation of share buyback
Moto GP
Grand Prix of Germany
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c. Sept Sept/Oct Oct/Nov late Aug
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Conclusion
Formula 1®
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• Highly attractive opportunity
• Significant expansion in headroom for growth
• Complementary businesses
• Enhancing to both revenue and earnings
• Significant value creation for BSkyB shareholders
Q & A
Ryder Cup
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Appendix
Ryder Cup
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£ millions Scenario 1: 57.4% of SkyD Scenario 2: 100% of SkyD Assumptions
Uses
SkyD consideration 2,851 4,967 €6.75 per share
SkyD shareholder loans 126 126 Estimate at completion
Sky Italia consideration 2,450 2,450 Gross of Nat Geo stake
Transaction fees 150 150 Estimate
Total 5,578 7,694
Sources
Equity placing 1,399 1,399 Based on 30-day average share price of £8.96
Nat Geo stake consideration 382 382 Stake translated from $650m at 1.70 (24 July 2014)
ITV stake 530 530 Disposal of 6.4% on 17 July 2014 plus hedge unwind
Use of existing cash 500 500
Contingency (250) (250)
New transaction debt 3,017 5,133
Total 5,578 7,694
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1. Fair Value adjustments, debt-related derivative MtM, unamortised bond fees, finance leases, EUR Loan Notes
2. Operating cashflow, dividends, rights payments, etc.
3. Disposal of 6.4% on 17 July 2014 plus hedge unwind
4. Estimated at €225m, translated at €1.2653:£1 (23 July 2014)
5. Transaction related bond proceeds + use of existing cash
6. EBITDA for the enlarged group excludes the one off impact of 2014 Winter Olympics which results in an increase in EBITDA of £30m
Scenario 1: 57.4% of SkyD Scenario 2: 100% of SkyD
£ millions Gross debt Cash Net debt EBITDA Net debt /
EBITDA Gross debt Cash Net debt EBITDA
Net debt /
EBITDA
$750m bond due Oct 2015 441 441
£400m bond due Oct 2017 400 400
$750m bond due Feb 2018 441 441
$582.8m bond due Nov 2018 (ex-$600m) 342 342
$800m bond due Nov 2022 470 470
£300m bond due May 2027 300 300
$350m bond due Oct 2035 206 206
Existing bonds 2,599 2,599
Other (1) (10) (10)
30 June 2014 2,589 1,377 1,211 1,667 0.7x 2,589 1,377 1,211 1,667 0.7x
Net cash movement (2) (627) (627)
ITV stake (3) 530 530
Estimate pre-completion 2,589 1,280 2,589 1,280
Consolidation of SkyD external debt (4) 178 178
Transaction related bond issuance 3,017 3,017 5,133 5,133
Net cash used for transaction (5) (4,047) (6,163)
Completion (enlarged group) 5,783 250 5,533 1,933(6) 2.9x 7,900 250 7,650 1,933 (6) 4.0x
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Notes:
1. Exchange rate assumptions of Euro:GBP at 1.2653 and USD:GBP at 1.7035
2. Share price of 914p as at 23 July 2014, market capitalisation of 14.1 billion. Net debt of £1,212 million as at 25 July 2014. Total TV products of 10.7 million as at 30 June 2014
3. Share price of $86.95 as at 23 July 2014, market capitalisation of $44.8 billion. Net debt of $17.8 billion, Non Controlling Interest of $0.4 billion as at March 2014 (Q1 10Q). Unconsolidated
Associates of $1.2 billion as at 31 December 2013 (10K). Total subscribers of 38.4 million as at 30 March 2014 (including DirecTV USA, PanAmericana, Sky Brasil, Sky Mexico) as reported in DTV’s
10Q as at 30 March 2014
4. EV of €7.1bn is median brokers Sum-of-the-Parts valuation from Citigroup, JP Morgan, Barclays, Bank of America Merrill Lynch and Morgan Stanley latest available analyst reports. Pay TV
subscribers of 6.1 million for individual Pay-TV subscribers in mainland France as at 31 December 2013 (Vivendi Q1 2014 investor presentation)
5. Combined EV of £7.4 billion, divided by total Sky Italia and Sky Deutschland subscribers of 8.5 million. Sky Italia subscribers of 4.8 million as reported by Sky Italia on 1 July 2014 in Business Plan
Update. Sky Deutschland direct subscribers of 3.7 million as at 30 March 2014 (Q1 report)
6. EV of €1.3 billion is calculated based on the acquisition of 56% stake from Prisa. 1.6m satellite subscribers as of 30 March 2014, as reported in Prisa Q1 report
BSkyB2 DirecTV3 Canal+4 Sky D/Sky I blended
avg.5 TEF / D+6
EV1 £15.3bn $61.7bn €7.1bn n/a €1.3bn
GBP EV1 £15.3bn £36.2bn £5.6bn £7.4bn £1.1bn
Subscribers 10.7m 38.4m 6.1m 8.5m 1.6m
EV per sub £1,436 £943 £921 £877 £649
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Sky Deutschland, 20 November 2012
“Following a binding ruling by the Munich tax
authorities, Sky’s accrued tax losses could be
preserved in the event of changes to the
Company’s shareholder structure. The tax
authorities granted approval on the technical
approach for application of the hidden reserve
clause, a part of the German Corporate Tax Law
to protect tax loss carry forwards.
“While the exact amount of the tax loss carry
forwards which Sky could preserve can only be
determined at the date when certain
shareholding thresholds are exceeded,
management believes that this ruling will
allow the Company to retain a significant part
of its tax loss carry forwards”
“As of 30 September 2012, the total amount of
Sky’s tax loss carry forwards was 2.3 billion Euros,
2.1 billion Euros of which relate to Sky’s German
operations”
“Börsenzeitung, 31 May 2014
“With regard to tax losses of Sky Deutschland,
we have received a binding ruling of the tax
authorities that despite a change in the
shareholder structure – back then the subject
was the investment of News Corporation in Sky
Deutschland – the tax losses would remain.
Our understanding of the situation is that this
will also be the case if another change of
ownership occurs.
At the moment we are valuing the hidden
reserves which determine to what extent the tax
losses are secured. If a change in
shareholdership occurs, we will have to repeat
this process of valuation. To my understanding,
the exception is, however, not affected thereby.”
Green’s 2013 Rights Issue prospectus
“Under German law, current tax loss carry-
forwards and interest will be forfeited if more
than 50% of the shares in a corporation are
transferred within a five-year period to another
person or entity or a group of acquirers acting in
concert. However, to the extent Sky
Deutschland has hidden reserves (stille
Reserven) in assets being subject to German
taxation at the time of a generally harmful
acquisition, its current tax losses, tax loss carry-
forwards and interest carry-forwards, should –
based on current German corporate income and
trade laws and an advance tax ruling by the
Munich tax authorities – still be available even
after such a generally harmful acquisition. Sky
Deutschland’s management therefore
believes that Sky Deutschland should be able
to retain a significant part of its current tax
losses and tax loss carry-forwards despite
News Adelaide’s acquisition of a majority
stake and in the event that another
shareholder will exceed certain shareholding
thresholds, e.g., 50% in the future. ”